New-Home Sales Plunged to Record Low in January

The sickly housing market was socked with another dose of bad news on Wednesday when the Commerce Department reported that new home sales fell in January to the lowest level since record-keeping began in 1963.

Almost as disturbing was the continuing reluctance of people to apply for mortgages. The Mortgage Bankers Association said applications for loans to buy homes dropped last week to the lowest level in 13 years.

By all rights, the housing market should be doing much better. Prices have fallen substantially in the last three years, mortgage rates are very low by historical standards and the government is giving all sorts of buyers a cash bonus.

“This should be an ideal time for people to buy,” said Brad Hunter, chief economist of Metrostudy, a housing consultant. “And yet they’re hesitating.”

January’s 11.2 percent drop in new-home sales to a seasonally adjusted annual rate of 309,000 came as a surprise to analysts, who had forecast an increase of 3.5 percent. It was the third consecutive month that sales fell.

The previous bottom was January 2009, after Wall Street crashed and there was considerable talk of another Great Depression. Wall Street has largely recovered and the depression talk has abated, but sales last month still fell 6 percent below the earlier trough.

That does not bode well for the expiration of tax credits for home buyers this spring, especially if mortgage rates rise to anything like their traditional levels.

“It’s going to be a very tough summer,” Mr. Hunter said. “You’re not going to have a robust housing market until you have more jobs, and you’re not going to add jobs fast enough to bring down the unemployment rate until you have a robust housing market.”

Economists generally do not give too much weight to new-home sales data, which is taken from a small sample size. But analysts said Wednesday that the downward trend was troubling.

“When one considers the billions and trillions of dollars that have been spent to prop up the housing market, that the best we could muster is a new low in sales is incredibly worrisome,” wrote Dan Greenhaus, chief economic strategist for Miller Tabak.

In the fall, new-home sales climbed rapidly as consumers rushed to take advantage of the $8,000 tax credit for first-time home buyers, which was originally set to expire at the end of November. But as soon as Congress extended the credit through April 30, sales began struggling.

An error has occurred. Please try again later.

You are already subscribed to this email.

Economists expected a second surge in sales at the beginning of this year as the April deadline approached. But with January’s numbers so low, and consumer confidence weakening, several said they were revising their forecasts and discounting the effect of the credit.

“We thought it was going to kick in and boost sales,” said Patrick Newport, a housing economist for IHS Global Insight. “It’s a little bit of a shocker.”

With so few buyers, inventory is starting to pile up again. This is contrary to what usually happens after a recession.

The Commerce Department said the supply of new homes rose in January to 9.1 months of inventory, up sharply from a recent low of 6.7 months in October. The inventory peak in this cycle was 12.4 months in January 2009.

Buyers do not seem to be flocking to houses in February, either. Applications for mortgages to buy houses fell 7.3 percent last week from the previous week, the Mortgage Bankers Association said.

While purchase applications are not a perfect mirror of the housing market — many foreclosed homes are being bought these days in all-cash deals — the recent plunge is another sign that the market remains in intensive care. Applications have dropped substantially since October and are now at their lowest level since May 1997.

The bankers association said applications for refinances dropped by 8.9 percent. Mortgage rates around 5 percent are apparently not attractive enough for some who wish to refinance. Many others are locked out from applying because they owe more than their homes are now worth.

A version of this article appears in print on February 25, 2010, on Page B8 of the New York edition with the headline: New-Home Sales Plunged To Record Low in January. Order Reprints|Today's Paper|Subscribe